International Business WEEK 2 Cultural and Political Environments Facing Business

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Chapter Objectives To understand methods for learning about cultural environments To analyze the major causes of cultural difference and change To understand cultural guidelines for companies that operate internationally To understand types of political system faced by international firms Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

What is Organizational Culture? The set of shared values, belief and norms that influence the way employees think, feel and behave towards each other and towards people outside the organization.

What is Organizational Culture? This definition explains: Organizational values, also known as "beliefs and ideas about what kinds of goals members of an organization should pursue and ideas about the appropriate kinds or standards of behavior organizational members should use to achieve these goals. From organizational values develop organizational norms, guidelines, or expectations that prescribe appropriate kinds of behavior by employees in particular situations and control the behavior of organizational members towards one another

Cultural Factors affecting International Business Operations Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall Culture importance CULTURE ELEMENTS: Language Religion Norms Products /services Managing people Strategy Operation Business risks Long term 2-6 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall 6

What Is Organizational Culture? (cont’d)

Examples of Organizational Culture

Elements of culture Rituals Artifacts Beliefs processes or sets of actions which are repeated in specific circumstances and with specific meaning. may be associated with company events such as the release of a new event. Artifacts The physical things that are found that have particular symbolism for a culture. Artifacts can also be more everyday objects, such as the bunch of flowers in reception. The purpose of artifacts are as reminders and triggers. When people in the culture see them, they think about their meaning and hence are reminded of their identity as a member of the culture, and, by association, of the rules of the culture. Beliefs An organization and culture will often share beliefs and ways of understanding the world. This helps smooth communications and agreement, but can also become fatal blinkers that blind everyone to impending dangers.

Elements of culture Symbols Heroes Norms and values like artifacts, are things which act as triggers to remind people in the culture of its rules, beliefs, etc. to keep people aligned. can also be used to indicate status within a culture. There may be many symbols around an organization, from pictures of products on the walls to the words and handshakes used in greeting cultural members from around the world. Heroes people who act as idealized examples, by which cultural members learn of the correct or 'perfect' behavior. The classic heroes are the founders of the organization, who are often portrayed as much whiter and perfect than they actually are or were. Norms and values effectively the rules by which its members must abide, or risk rejection from the culture (which is one of the most feared sanctions known). They are embedded in the artifacts, symbols, stories, attitudes, and so on.

Major Language Groups: Population and Output 2-12 Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall 12

What Do Cultures Do? Culture’s Functions: Defines the boundary between one organization and others. Conveys a sense of identity for its members. Facilitates the generation of commitment to something larger than self-interest. Enhances the stability of the social system.

What Do Cultures Do? Culture as a Liability: Barrier to change Barrier to diversity Barrier to acquisitions and mergers

The Nation as a Point of Reference National boundaries act as proxy for culture Not everyone in a country shares the same culture Certain cultural attributes may link groups from different nations more closely than certain groups within nations Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Language as a Cultural Stabilizer When people from different areas speak the same language, culture spreads more easily Among nations that share a same language, commerce is easier Some countries see language as being so important that they regulate the inclusion of foreign words and/or mandate the use of the country’s official language for business purposes. Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Religion as a Cultural Stabilizer Religion is a major source of both cultural imperatives and cultural taboos. Many religions influence specific beliefs that may affect business

Religion as a Cultural Stabilizer Centuries of profound religious influence continue to play a major role in shaping cultural values Many religions influence specific beliefs that may affect business Copyright © 2009 Pearson Education, Inc. publishing as Prentice Hall

Managerial Issues Associated with Cultural Differences Accommodation of foreigners Cultural distance [degree of similarity] Culture shock and reverse culture shock Managerial orientations polycentric ethnocentric geocentric

Implications/Conclusions Culture is dynamic and evolves over time. Economic development and globalization are two engines of cultural change. To be part of a national culture, people are simultaneously part of other cultures, such as social and professional associations and business and government organizations. [continued]

Host cultures do not always expect firms and individuals to conform to their norms; in some instances they may choose to accommodate differences in traditions. International firms should make a concerted effort to identify ideas and behaviors in host countries and foreign cultures that can be usefully applied across the whole of their organizations.

Political environment

Political System Defined the complete set of institutions, political organizations, and interest groups, the relationships amongst those institutions, and the political norms and rules that govern their functions The fundamental goal of political system is to integrate the elements of society

Ways to Assess Political Systems Individualistic -people accept the primacy of individual freedoms in the political, economic, and cultural realms -people believe in minimal government intervention Collectivist -people reason that the needs of society take precedence over the needs of the individual -people believe that it is the government’s role to define the needs and priorities of the country Collectivist paradigms may be either democratic (Japanese) or authoritarian (Chinese) in nature.

Political Ideology Defined Political ideology: the body of constructs, theories, and aims that constitute a sociopolitical program • Shared ideologies create bonds within and between countries; differing ideologies split societies apart.

The Political Spectrum

Democracy Wide participation by citizens in the decision-making process Five types: Parliamentary – citizens exercise political power by electing representative to parliament (India, UK, Malaysia, Australia) Liberal – protects certain individual freedom (freedom for giving speech, assembly and religion) (N.Zealand, Japan) Multiparty – more political party (Canada, Germany, Italy) Representative – US – one people elected representative to take charge acting in the people interest Social – belief that society must regulate and reform capitalism to control (Norway, Sweden)

Features of Democratic Systems freedom of opinion, expression, and the press freedom to organize free elections limited terms for elected officials an independent and fair court system a nonpolitical bureaucracy &defense infrastructure citizen access to the decision-making process

Totalitarianism Restricts decision making to a few individuals Types: Authoritarianism – government have full control Fascism – control people mind set Secular totalitarianism – single political party form a government

Political Risk Defined Political risk: the expectation that the political climate in a country will change in such a way that a firm’s operating position or investment value will deteriorate MNCs do their best to effectively deal with the threat of political risk through active and/or passive approaches.

Types of Political Risk and influence on IB Systemic [not threat international firm performance - change in public policy] Procedural [bureaucratic delays, labor disputes, etc.] Distributive [tax and regulatory revisions] Catastrophic [random political events – can threat the international firm ]

Leading Sources of Political Risk International war or civil strife Unilateral breaches of contract Destructive governmental actions Harmful actions against people Restrictions on the repatriation of profits Differing points of view Discriminatory taxation policies

What aspect political can influence IB? Political ideology – too many, more difficult Political spectrum – impact on policy, rules and regulation, business negotiation Political risks – high risk harmful IB

Questions for discussions Discuss four components culture and how they can influence international business Discuss how political of Malaysia can influence international business